Contract Designs and Participation in the Conservation Reserve Program in the Era of Biofuel Production

This article has presented a farmer decision making model of participation in the Conservation Reserve Program (CRP) under the current rising bio-fuel production. The decision is specified as an optimal stopping problem and farming return is assumed following stochastic process with the uncertainty of growth rate. Nonliear Kalman filter approach is used to continuously upgrade the new information and estimate the random growth rate with the minimum error. The problem is formulated as a linear complementarity problem that is solved numerically using a fully implicit finite difference method. It is found that participation in the CRP is sensitive to financial incentive, and shortening contract length is also an effective method to promote land enrollment in the CRP. These results have implications for the design and implementation of conservation programs.